Coronavirus Market Turmoil – What Else Can The FED Do? - a podcast by McAlvany ICA

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The McAlvany Weekly Commentary

with David McAlvany and Kevin Orrick



Coronavirus Market Turmoil – What Else Can The FED Do?

March 4, 2020



"What is your game plan? What is your strategy? My attitude toward the markets is a little bit like my attitude toward coronavirus. I’m not inclined to shut myself in. I’m inclined to figure out what the best strategy is. If there are some practical things that can be done, then by all means we’ll get that done, but not to live in fear or panic, just to make sure you are implementing an excellent and well-thought-out plan."



- David McAlvany



Kevin: You have quoted this before, David. Someone once said there are decades when nothing happens, and there are weeks when decades happen. I am going to just add to that, because even today, there are seconds when days happen. What we saw with the Federal Reserve yesterday we could have predicted was coming because the markets right now are starting to realize they were overvalued. They were realizing that long before. Now the coronavirus has become an excuse for the Federal Reserve to do what they probably were going to have to do anyway.



David: We know that they can do more. They can monetize assets, and that is one of the last bullets that they have, taking rates near zero, and with a 50 basis point cut this week it does leave them with very limited options. But they can expand the balance sheet. They are currently buying 60 billion in assets a month. So let your imagination run. Is there a number that represents shock and awe in the 21st century?



Kevin: I wonder if people are going to cry out for the very thing that they would have cried about earlier. Now people are seeing the stock market falling and saying, “Give us negative rates, give us negative rates.” This 50 basis point cut yesterday reminded me of what Tomas Sedlacek told us a few years ago. He said that the new religion and the new priests of that religion have to do with perpetual growth, and that is what we have had with the central bankers continually adding to this market. And this high priesthood of this new religion of perpetual growth is the central bankers. Anything they say or do seems to be a little bit like the priests of old. In a way, they offered a sacrifice to that god yesterday and the stock market suddenly reversed and went up. It didn’t last, but it reversed and went up.



David: One of the more interesting aspects of dinner table conversation this week has been, again, just sort of taking away some of the tragic elements of people dying hither and yon, relating to the coronavirus, and just looking at things from a political or social perspective, and seeing that insecurity is something that allows for significant controls to be put in place. If you look in China, the use of technology, the Economist had a couple of excellent articles on the use of technology, the expansion of technology and drone technology and QR codes for each person, where you are either a green, a yellow, or red.



Kevin: And the drones will chase you if you are a red.



David: (laughs)



Kevin: We saw that video, that poor Chinese lady, who obviously was not supposed to be out of her house.



David: I’d be running too if I had a drone yelling at me in Chinese. There is nothing like being berated by a machine. So, I think the social aspects are interesting because there is a certain – if you tell us that something is very, very wrong and there is nothing we can do about it, then we kind of roll over and just say, well, help us solve the problem. That could be central banks doing that.

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